PG&E Reports $2.2B Fourth-Quarter Loss

Published 7:00 pm, Wednesday, February 26, 2003

PG&E Corp. reported a fourth-quarter loss of $2.2 billion on Thursday, reflecting the downfall of an unregulated power trading unit considered a company jewel just two years ago.

The loss amounted to $5.75 per share for the final three months of 2002 and left the owner of the Pacific Gas and Electric utility with its second annual loss in the past three years.

For all of 2002, PG&E lost $874 million, or $2.36 per share, in contrast to a 2001 profit of $1.1 billion, or $3.03 per share. Revenue fell to $2.97 billion from $3.02 billion in 2001.

In 2000, PG&E lost $3.4 billion after Pacific Gas and Electric plunged into bankruptcy.

While the utility remains mired in bankruptcy, Pacific Gas and Electric no longer represents the biggest financial headache for the holding company.

PG&E is now being tormented by the miseries of its power trading unit _ National Energy Group, or NEG.

Excluding an assortment of accounting charges and an electricity pricing cushion known as "headroom," PG&E said it earned 48 cents per share in the fourth quarter. That exceeded the consensus estimate of 45 cents per share among analysts surveyed by Thomson First Call.

PG&E's shares rose 42 cents to close Thursday at $13.19 on the New York Stock Exchange.

Although investors seemed to shake it off, the fourth-quarter report served as another stunning reminder of a remarkable shift in the power industry.

A steep drop in wholesale power prices has crippled once high-stepping energy merchants such as NEG, ruining their credit ratings and forcing them to scramble to find ways to repay lenders for past debts.

PG&E absorbed an after-tax charge of $2.4 billion to account for the diminished value of NEG and expected losses on New England and Canadian assets expected to be sold later this year.

NEG probably won't be able to repay all its debts, PG&E has warned. That has raised the prospect of another PG&E subsidiary landing in bankruptcy court, but management said it is trying to avoid that scenario by negotiating new deals with lenders, including about 40 banks.

"We are fully engaged in that effort, and we continue to believe this is an achievable, though challenging, goal," said Robert Glynn, PG&E's chief executive.

If NEG's debt can't be restructured, the unit "won't continue in any form" at PG&E, Glynn told analysts during a conference call Thursday.

Peter Darbee, PG&E's chief financial officer, warned that investors will have little warning if the talks with lenders collapse. "There won't be a lot of milestones until we come out and say we either have a deal or we don't," Darbee said.

The uncertainties facing NEG represent a harsh comedown for a unit once being groomed to become an energy powerhouse.

The rising wholesale power prices that helped push Pacific Gas and Electric into bankruptcy turned into a boon for NEG, which earned $209 million from its operations in 2001. In 2002, NEG's earnings from operations shriveled to $13 million, punctuated by a $36 million loss during the final three months of the year.

Including the accounting charges, NEG lost $3.4 billion in 2002.

Pacific Gas and Electric, meanwhile, has emerged as the parent company's financial salvation, even though the utility didn't fare as well in 2002 as it did in 2001.

The utility earned $204 million in the fourth quarter, a 41 percent drop from the previous year. For the full year, the utility posted a profit of $797 million, a 13 percent decrease from $914 million in 2001.

Pacific Gas and Electric is trying to convince a federal bankruptcy judge to approve its proposed reorganization over a competing plan put together by state regulators. The court hearings reviewing the rival plans are expected to continue into April, PG&E management said Thursday.